...commended by the 1976 Nobel Prize Laureate in Economics Milton Friedman as "so famously laissez-faire". On the first anniversary of the death of Sir John Cowperthwaite, The Lion Rock Institute launched The Sir John Cowperthwaite Online Memorial And Study Centre to contribute to the greater understanding of the contribution of this freedom fighter to Hong Kong's economic freedom and prosperity.

Monday, January 08, 2007

Arriving in the Colony

Born on April 25, 1915 in Edinburgh, Scotland, Sir John Cowperthwaite was educated in Merchiston Castle School and majored in Classics at St. Andrews University and Christ's College (Cambridge). He studied Economics after his return to St. Andrew University.

He was married to Sheila Thomson in 1941 and joined the Colonial Services in Hong Kong the same year. However, during his journey to Hong Kong, the Pacific War broke out and the British government had him spent 3 years in Sierra Leone until the War was over in 1945. He then worked in the Trade and Economic Affairs Department and was promoted in 1952 as the assistant Financial Secretary. In 1961, he succeeded Arthur Clarke as the Financial Secretary.

The Global Economy and Hong Kong's situation after World War II

The world was in ruin after WWII. As most countries had operated planned economy (eg. ration policy) during wartime, this kind of policies did not change immediately after the war. Looking back, it was understandable as the reconstruction of physical infrastructures required governments to take the leading role. However, the central planning framework was maintained even after the self regulatory price mechanism (of the private sector) recovered. Keynesianism: governments' manipulation of the economy through fiscal and monetary policies (quite easy to turn into budget deficit and high inflation) was the mainstream in that era. According to data from Organization of Economic Cooperative Development (OECD), the real GDP growth from 1949 to 1973 for western industrialized nations were 4 – 4.5%, much higher than 2 – 2.9% for the later 25 years. In 1950s and 1960s, there was a common belief that prosperity was the norm as long as governments followed the Keynesian doctrine. As a matter of fact, whether the robust economic growth in the post-war period was mainly out of Keynesian policies or explosive productivity growth driven by wartime technologies is itself debatable! All we know is that the former chairman of the Federal Reserves, Alan Greenspan, attributed the stagnancy of the US economy in 1970s partly to Keynesianism.

Contrary to the rest of the world, although the economy of Hong Kong was also overseen by government right after the war, the policies of development went back to market oriented mechanism quickly. Soon after the establishment of the military government in September 1945, export and import resumed in November 1945. When the governor was back to his office, he announced Hong Kong as a free port: minimal restrictions on import, no export subsidies and no tariffs on all imports except several commodities. The free port policy highlighted Hong Kong's exceptional freedom in the era of protectionism, especially when compared to her sovereign country: the United Kingdoms. So without government playing an active role in the economy, how did the economy of Hong Kong perform? The annual real GDP growth was 7.8, according to OECD.